Statutes Authorizing the Agency to Adopt Rules on this
Subject: RCW 31.12.426(1).

Reasons Why Rules on this Subject may be Needed and What
They Might Accomplish: Superseding NCUA's MBL Rules: All
Washington state-chartered credit unions (WASCUs) are federally
insured by the National Credit Union Share Insurance Fund
(NCUSIF), administered by the National Credit Union
Administration (NCUA). RCW 31.12.407. Among other requirements,
the NCUA requires all insured credit unions to comply with its
member business loan (MBL) rules. 12 C.F.R. Section 741.203;
Part 723 (recently adopted at 63 Federal Register 51793,
September 29, 1998).

The NCUA's MBL rules preempt the application of any less
restrictive state laws to federally insured, state credit unions,
including the DFI's MBL rules (chapter 208-464 WAC). As a result
of this preemption, the DFI's existing MBL rule does not apply to
any WASCUs, unless nonfederally insured credit unions are
permitted to do business in this state in the future under RCW
31.12.408. For this reason, the DFI intends to repeal its
existing MBL in a separate proceeding.

However, state MBL rules may, upon a determination by the
NCUA board, supersede the NCUA's MBL rules. 12 C.F.R. Section
741.203(a). Although in the past the NCUA would not reach such a
determination unless the state MBL rules were virtually identical
to the NCUA's, the NCUA has recently given signals that it is
willing to relax its standards.

The DFI believes that it should adopt new MBL rules that are
more flexible than its existing MBL rules, for submission to the
NCUA board for such a determination. More flexible rules will
allow credit unions to better serve the needs of their members.
Because DFI's existing MBL rules need to be extensively revised,
the DFI believes that it would be more convenient to adopt new
MBL rules, rather than amend its existing MBL rules. To revise
its MBL rules for this purpose, the DFI is adopting new MBL rules
through this rule-making proceeding.

The DFI's new MBL rules will not take effect until the NCUA
board has reached a determination that they supersede the NCUA's
MBL rules.

Substance of DFI's New MBL Rules: The DFI intends to use
the NCUA's new MBL rules as a starting point for drafting DFI's
new MBL rules. See the NCUA's interim final MBL rules at 63
Federal Register 51793, September 29, 1998. Interested parties
should provide comments to the Division of Credit Unions on which
provisions of the NCUA's MBL rules should be amended or deleted,
and what new provisions should be added to these rules, for the
purpose of drafting the DFI's new MBL rules.

Expedited Repeal of DFI's Existing MBL Rules: On the date
of filing of this form CR-101, the DFI is filing a preproposal
statement of inquiry, form CR-101XR, for the expedited repeal of
its existing MBL and appraisal rules.

Continuing Safety and Soundness Restriction on Aggregate
MBL as Multiple of Reserves: Notwithstanding the proposed repeal
of WAC 208-464-030, a section in DFI's existing MBL rules, the
DFI has taken the position that as a matter of safety and
soundness the aggregate amount of a credit union's MBL (as
defined by the Federal Credit Union Act, as recently amended by
H.R. 1151) may not exceed an amount equal to three times its
reserves, without the written permission of the DFI.

Other Agencies' Regulation of MBL: No other Washington
state agencies regulate credit unions' MBL.

Other Federal and State Agencies that Regulate this Subject
and the Process Coordinating the Rule with These Agencies: See
above.

Process for Developing New Rule: Consultation with
interested parties.